Our Take, With Doug Sheridan
Continuing with our series of posts examining the breakeven costs of a hypothetical PV-hybrid electric grid, ie, one powered solely by solar panels and battery energy storage
Our Take, With Doug Sheridan
Continuing with our series of posts examining the breakeven costs of a hypothetical PV-hybrid electric grid (ie, one powered solely by solar panels and battery energy storage), we’re now prepared to address the issue of O&M for the system.
Like many, we feel like we've got a fairly good handle on the notion that variable O&M for both the PV and battery system (BESS) can be presumed to be very low. But it required some research on our part to get credible fixed O&M (FOM) estimates. For this, we again settled on National Renewable Energy Laboratory 's findings.
The NREL does a good job framing what costs would typically be included in FOM. For the PV portion, the larger admin and service line items are assumed to be insurance, land lease payments, property taxes, cost of inverter specialists, transformers, connection fees, major and minor replacement part costs, inspection, cleaning, electricians, PV array and module specialists, general maintenance, plus other miscellaneous costs. The BESS list is similar, but includes battery augmentation costs and excludes inverter costs.
Because the NREL resource allows, we selected separate midpoint FOMs for both the PV and BESS portions of our unique system. As has been our practice, in most of our assumptions, we’ve chosen something a bit more favorable to the final economics of the system than what a typical best-guess assumption might look like.
Note—The NREL pre-selects reasonable default values for several variables when calculating these costs. For example, for PV assets, the costs shown are for the mid (moderate) case over 20 years and mature technology. For the BESS, the assumption is 4-hour utility scale storage and a 20-year life.
As the attached graphs from NREL show—and consistent with our approach to give PV Hybrid tech the benefit of the doubt when we can—our FOM assumptions of $25 and $15 per KW of nominal capacity per year of the PV and BESS, respectively, are on the low end of the mid-points.
After escalating these costs 2% annually, our assumed annual FOM comes out to 1.8% ($4.0B / $219B) and 0.6% ($1.4B / $241.6B) of PV and BESS capex costs on average, respectively. This seems more than fair, since we'd guess most PV-hybrid investors would be plenty pleased to keep average annual fixed O&M below 2% of capex over its project life. Are we wrong?
As would be expected, layering these additional FOM costs into the breakeven calculations (something many analysts, weirdly, seem loath to do), can only have a deleterious effect on the resulting cost of power. In the case of our system, it in fact pushes the breakeven to a hard-to-celebrate $95.91 per MWhr, up from $85.25 without the inclusion of FOM costs.
Next post, we’ll examine our place-holder assumption of a pre-tax WACC of 7.00% for our project. Expectations are it'll need some adjusting. Stay tuned.
Thanks for the research. So, is that $95 figure the wholesale cost for the utility, which then has to be raised for the consumer's retail price. What is your estimate for the consumer rate?